Review of Termination Decision - sodium tripolyphosphate from China

Sodium Tripolyphosphate (STPP) exported from China

On 8 June 2007, I received an application made on behalf of Albright and Wilson (Australia) Ltd (AWAL) for a review of a decision by the Australian Customs Service (Customs) to terminate an anti dumping investigation in relation to the import of STPP from China. On 23 November 2006, AWAL had made an application under section 269TB of the Customs Act 1901 (the Act) requesting the Minister for Justice and Customs to publish a dumping duty notice in respect of STPP. On 2 January 2007, Customs published a notice in the Australian newspaper advising that AWAL’s application had been accepted and an investigation was initiated.

2.         Four Chinese corporations involved in the export of STPP to Australia cooperated in the investigation, namely Jiangyin Chengxing International Trading Co Ltd (International Trading), Jiangyin Chengxing Household Chemicals Co Ltd (Household Chemicals) Hubei Xingfa Chemcials Group Co Ltd (Hubei) and Kunming Malong Chemical Co Ltd (Kunming). These manufacturers and exporters accounted for between 80 and 90% of exports of STPP to Australia over the calendar year 2006 (the investigation period).1 Customs also visited a number of Australian importers and importing agents, as well as some end users of STPP. Customs found that exports by Hubei, Kunming and Household Chemicals exported to Australia at prices that were not dumped, or that the dumping margins were negligible. In relation to other exporters Customs found that dumping margins were negligible. In accordance with section 269TDA of the Act, the investigation was terminated on 11 May 2007.2

3.         As the applicant for the dumping duty notice, AWAL is entitled under section 269ZZO to apply for a review of Customs’ decision to terminate the investigation. AWAL’s application for review does not contain any confidential information, and so no issue arises about rejection of the application under section 269ZZR.

4.         AWAL advances several grounds which it says justify reviewing the termination decision. It claims Chinese domestic selling prices for STPP are artificially low because the Chinese Government has artificially used its value added tax (VAT) regime to discourage exports and promote downstream processing in China. Examining domestic Chinese sales of STPP could not be used for ascertaining normal value reliably because of depressed prices. AWAL says that Customs should have sought information on these matters from the Chinese Government.

5.         AWAL submits that Customs incorrectly determined that domestic sales of STPP by Chinese exporters during 2006 were made in the ordinary course of trade. They say domestic prices in China for phosphate rock, phosphorous and phosphoric acid are significantly lower that export prices for the commodities and that they are not satisfied with Customs’ level of validation during the verification process. Further AWAL says that Household Chemicals incurred losses in 2005 and 2006 and that they find it perplexing that a company that has made losses can be found to have made sales of STPP in the ordinary course of trade.

6.         AWAL also claims that Hubei would separately account for manufacturing costs associated with phosphoric acid, and says that the suggestion that STPP costs are derived from phosphate rock, soda ash and electricity is unrealistic. AWAL says that it expects that fully absorbed STPP production costs, including fully costed phosphorous and phosphoric acid are not reflected in domestic selling prices for STPP and hence were not in the ordinary course of trade. AWAL makes similar claims in relation to Kunming.

Market situation in China

7.         AWAL claim that prices for STPP in the Chinese domestic market are not suitable for determining normal value, because the Chinese Government has manipulated its value added tax regime to discourage exports of raw materials and has also imposed an export tax of 10% on particular raw materials used in the manufacture of STPP. They say these measures have created an oversupply in China thereby depressing prices artificially.

8.         Section 269TAC of the Act provides that normal values of goods exported to Australia is the price paid or payable for like goods sold in the ordinary course of trade for home consumption in the country of export in sales that are arms length transactions by the exporter, or if like goods are not sold by the exporter, by other sellers of like goods. There are alternative means of determining normal values in cases where the Minister is satisfied that the Government of the country of export has a monopoly of trade and determines or substantially influences the domestic price of goods in that country.

9.         Volume 22 of the Customs Manual Dumping and Subsidy sets out Customs policies for determining whether prices are artificially low. The relevant provisions of the manual in division 2.5.2 Establishing normal value by the price paid or payable method are as follows:

(63)         Sales that would otherwise be relevant for determination of normal value may be unsuitable because the price does not reflect a fair price in normal market conditions. The legislation does not define market situations that would render domestic sales as unsuitable. The investigation and analysis of each case must fully set out the reasons for the unsuitability of sales before determining normal value under succeeding provisions of section 269TAC.

(64)         In considering whether sales are not suitable for use in determining normal value under subsection (1) because of the situation in the market of the country of export Customs has regard to factors such as whether the prices are artificially low, whether there is a significant barter trade or whether there are other conditions in the market which render sales in the market not suitable for use in determining prices under subsection 269TAC(1).

(65)         The concept of artificially low pricing is adopted from the EU. Government influence on pricing could be one cause of ‘artificially low pricing’.

(66)         Government influence means influence from any level of Government.

(67)         Prices do not have to reflect perfect market competition to be suitable. For example, if a market is distorted because of monopoly supplier situation the price may be considered acceptable, if the prices are not artificially low.

(68)         As another example, prices may be artificially low because of significant governmental distortion of the domestic market due to the presence of government owned enterprises. The presence of government owned enterprises may not of itself lead to a conclusion that sales are unsuitable. Rather Customs looks to such matters as the numbers of government owned enterprises, whether they are trading unprofitably so as to significantly lower prices in the market such that prices of private enterprises in the market are also lowered and whether market conditions can no longer be said to prevail.

(69)         Prices may be artificially low because of significant government distortion of the domestic market due to government influence on the cost of inputs. Again, there mere existence of any government influence on the cost of inputs would not be enough to make sales unsuitable. Rather customs looks to the effects of this influence on prices and the extent to which market conditions can no longer be said to prevail. It should be noted government influence on costs can only disqualify the sales if those costs can be shown to be affecting the prices by making those prices artificially low…

10.       AWAL suggests that Customs has incorrectly applied these policies, because in its preliminary assessment of the market in China, it stated that ‘significant government intervention in relevant market factors could distort prices to a degree that those prices are artificially low and unsuitable for establishing normal value’.3 AWAL says that significant government influence on prices and costs is not an absolute requirement for determining artificially low prices and that it is enough if government influence is one factor.

11.       The Customs Manual merely provides guidance to officers in the application of the relevant provisions of the Act. The test as stated in paragraph 269TAC(4)(b) of the Act is that the government in question ‘determines or substantially influences the domestic price of goods’. I consider that Customs applied this test correctly.

12.       The material on the Customs file showed that the Chinese Government did not determine the price of STPP or any of its constituent ingredients. It did control pricing for rail transport, as the railways are a State owned enterprise. However, railway transportation was not used exclusively by the Chinese industry, which used shipping and road transport as well. Furthermore, Customs did not find any evidence to refute the submissions of the Chinese exporters that they paid standard industrial rates for rail freight.4 In relation to electricity, the material on file suggested that the Chinese Government did not set electricity tariffs, but it certainly exercised control over access to electricity5, on one occasion of shortage of generating capacity diverting it from industrial use to residential and other consumer use.

13.       The export taxes and VAT rebates mentioned by AWAL seemed designed to limit exports of exhaustible commodities for natural resource conservation reasons and possibly also because of broader balance of payments issues. It also appeared that the Chinese Government exerted controls over the chemical and other industries designed to reduce the number of enterprises, to eliminate small operators with inefficient plant and equipment and to conserve energy. Customs determined after detailed analysis that it could not be satisfied that sales in the Chinese domestic market were unsuitable for determining normal value by reason of these and related matters. I am not persuaded by AWAL that I should disturb this finding.

Jiangyin ChengXing

14.       AWAL considers that Customs’ assessment of Jiangyin Chengxing subsidiaries’ purchase price for phosphoric acid has been inadequate. Further, AWAL say that Customs had access to costs and sales for phosphoric acid from one of the other Chinese exporters, and that information sourced from this company could have been used to benchmark whether Household Chemicals’ purchase price for phosphoric acid adequately recovered the fully absorbed cost of production. AWAL requests that an apparent anomaly for STPP raw material costs, namely that domestic prices are significantly lower than export prices be examined. AWAL also queries how a company that incurred losses in 2005 and 2006 could be found to have made sales in the ordinary course of trade.

15.       I consider that Customs’ did adequately examine the related party transactions. The normal value investigation report states that Household Chemicals provided 4 different quotes for phosphoric acid from non related parties. The related party, Phosph-Chemicals sold phosphoric acid to Household Chemicals at a verified price slightly higher than the quoted prices from the non-related parties. The audited financial report of Phosph-Chemicals also indicated that the relevant transactions were at market prices. In relation to phosphorous purchases by Phosph-Chemicals transactions were carried out through Xingxia Logistic Co Ltd (Xingxia). Xingxia purchased from Guizhou Mingyuan Industrial Development Co Ltd, Sichuan Electrical Production Co Ltd and Xuanwei Phos-electrical Co Ltd, the latter being related to Xingxia. Because Phosph Chemicals and Xingxia were related entities, Customs considered there may be doubt as to whether the transactions between the two were at arms length. Accordingly, Customs obtained invoices for purchases by Xingxia from each of its suppliers for transactions in August 2006. These invoices showed that the related suppliers’ prices were slightly higher than the prices paid to the non-related suppliers.6

16.       On the issue of whether the Household Chemicals’ sales were transactions in the ordinary course of business, I am satisfied that Customs has correctly applied section 269TAAD of the Act. A significant number of sales of both technical and household grade STPP by Household Chemicals were not in the ordinary course of trade as defined, and these transactions were excluded from consideration in determining normal value. However, there were enough transactions ascertained to be in the ordinary course of trade for use in determining normal value in accordance with subsection 269TAC(1) of the Act.


17.       AWAL’s principal claim in relation to Hubei is that it would be extraordinary for a phosphoric acid producer of the scale of Hubei not to separately account for manufacturing costs associated with the production of phosphoric acid. AWAL does not indicate why it makes this assertion. As Customs observed, Hubei does not sell phosphoric acid and its costs breakdown comprised costs for phosphate rock, yellow phosphorous, soda ash, sodium nitrate, coal and electricity.7 I consider there is no reason to disturb Customs’ conclusion that raw material and other manufacturing costs were fully absorbed by Hubei, and that their transactions were all carried out in the ordinary course of trade in terms of section 269TAAD of the Act.


18.       AWAL submits that it is inconceivable that a company that did not produce STPP for almost 6 months could recover its full costs in the remaining 6 months of the year. Kunming had been unable to obtain electricity supplies in most of the first half of 2006, because of a prolonged period of dry weather. It sourced its power from a State owned hydroelectric plant. Because of limited generation capacity, electricity supply to large industrial users was cut off and available power diverted to meet domestic needs. AWAL may be correct in its assertion that in circumstances where a producer of STPP is not producing any product for almost 6 months it would be difficult if not impossible for it to recover full operational costs. However, that is not the issue. The focus in the anti dumping investigation is on whether products have been sold into the Australian market at dumped prices. In broad terms if sales domestically and for export were profitable and not less than the normal value of the goods in the country of export, then dumping is not established.

19.       Kunming was able to identify the cost of phosphoric acid in its cost to make statement.8 I am satisfied that the verification of Kunming’s costs was properly carried out.

Conduct of the investigation

20.       During the course of the investigation, AWAL pressed Customs to meet with Chinese government officials to establish the extent of government influence over the price of raw materials and other inputs in the STPP process. Customs declined to do so on the basis that it would prefer to determine whether the production costs declared by the Chinese exporters reasonably reflected the competitive market costs associated with the production of like goods sold in China. I consider this was the correct decision. It is unlikely that information that could be provided by Chinese Government officials about industry policy would be of any assistance to determining the question whether there was a market situation for STPP which rendered domestic sales unsuitable for determining normal value.


21.       It follows from what I have said that I consider the termination decision in this matter should be affirmed.

Mark A. Zanker

Trade Measures Review Officer

1Trade Measures Termination Report No 121 (TMR121) at p9

2TMR121 at p22

3See Customs’ Assessment of the STPP Market Situation in China, Attachment 1 to Trade Measures Termination Report No 121 (TMR121) at p 25.

4Ibid at p 34.

5See for example Household Chemicals and International Trading normal value visit report at folios 207 to 216 on file C07/06775 and Kunming visit report at folios 86 to 89 on file 07/03706.

6See generally file C07/06775 and related files

7Confidential attachment CTMS 4 on file C07/06127

8Confidential attachment CTM1 to the normal value report at folio 38 on file C07/03705

Key Legislation